Compliance Consolidation

The introduction of the FAIS Act brought a number of additional layers of cost which providers of financial services had to absorb. The majority of the tentacles of this octopus have compliance written all over it. It therefore makes good business sense for providers to review their compliance commitments on a regular basis.

A TCF guide for smaller FSPs and independent financial advisors was released as part of the TCF workshop on 20 November 2013, and contains the following warning:

Small FSPs need to always keep in mind that TCF is not the responsibility of your compliance officer nor can it be outsourced to another party. TCF is something that needs to be incorporated into the way that you conduct business every day and in the way that you deal with your clients.

A compliance officer can provide guidance and assistance to your FSP with regards to how you will incorporate TCF into the way you conduct business, but it will be up to you as a FSP to ensure that TCF is central to your FSP.

The same, of course, applies to compliance in general – your compliance officer, whether internal or external, is a resource to assist you in ensuring that you comply with the following provision of the General Code of Conduct regarding risk management:

A provider and a representative must, at all times, maintain such satisfactory internal control procedures, management systems and operational capabilities as can reasonably be expected to capture, monitor and control risks in relation to the business and to protect business operations, clients, product suppliers and other providers or representatives from financial loss arising from theft, fraud, and other dishonest acts, professional misconduct (including negligence) or omissions.

This is but the tip of the iceberg, as far as the role of the compliance officer is concerned. An enormous amount of time is spent in the back office, doing research and development to ensure that the required knowledge is up to date, and templates comply with the latest requirements.

Regulatory legislation is anything but static, and even professional compliance services providers have their hands full to keep up to date with regulations, and interpreting it correctly.

Each advisory practice has its own specific needs. A sole proprietor is not obliged to appoint a compliance officer, possibly from a cost perspective. If you look at it from a risk point of view, though, the cost could be considerable if non-compliance leads to your licence being withdrawn.

Bigger practices sometimes opt to appoint an internal compliance officer. Possibly the biggest challenge for such individuals lie in keeping up to date with legal requirements, and remaining objective when assessing the way in which business is done in the practice. Many practices adopt a dual compliance solution, with their internal compliance officer acting as the implementer of recommendations by a professional compliance practice.

We are likely to see more consolidation amongst compliance practitioners in the next year or two. Similar to small advisory practices, it is becoming more and more difficult for smaller compliance practices to keep up the juggling act.

The plethora of new legislation envisaged for the industry will place huge demands on the ability of compliance practices to integrate these changes into existing structures. Failure to do so can boomerang on the advisor, who retains accountability for what happens in the practice.

TCF will be outcomes based. In other words, there will not really be hard and fast rules which you either comply with, or not. This brings an element of subjectivity to the table which can lead to unforeseen problems for those who plan to pay lip service to what they are required to do in terms of treating customers fairly.

For the smaller advisory practices, merging with others, and sharing costs and resources, may be the only way to survive in an industry where the only certainty is more and more regulation.

About Paul Kruger

He is both editor and writer-in-chief of the Moonstone Monitor, the Moonstone Investment Indicators and the Moonstone Online website. After 35 years in financial services, he is as passionate about the industry as he is about sport, wine and music.